COMMISSIONER INLAND REVENUE, ZONE-II VS SIEMENS PAKISTAN ENGINEERING, COMPANY LTD., KARACHI, 2017 PTD-KARACHI-HIGH-COURT-SINDH 1832 (2017)

Income Tax Ordinance (XLIX of 2001)---

----S. 133---Reference to High Court---Jurisdiction of High Court under S. 133 of the Income Tax Ordinance, 2001---Maintainability / competence of reference where questions of law contained therein had already been decided by the Superior Courts---Scope---Scope of filing a reference application in terms of S. 133 of the Income Tax Ordinance, 2001 could not be equated with filing an appeal or revision and its scope was restricted only to extent of referring question(s) of law arising form an order passed by Appellate Tribunal, for the opinion of the High Court---High Court observed that filing of frivolous references by Department needed to be addressed so that the High Court as well as the litigants may not be unnecessarily burdened with such cases where question of law already stood decided by the Superior Courts.

2000 PTD 3741 and 2006 PTD 2256 ref.

Asif Ali for Applicant.

Date of hearing: 2nd May, 2017.

ORDER

Through instant reference applications, the applicant department has proposed following common question, which according to the learned counsel for the applicant, is a question of law arising from the combined impugned order dated 19.11.2015 passed by Appellate Tribunal Inland Revenue in I.T.A. No. 1060/KB/2013 (Tax Year 2007) and I.T.A. No. 1061/2013 (Tax Year 2009), for opinion of this Court:--

"Whether under the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue is justified in holding that the late delivery charges cannot be termed as paid in violation of law, rule or regulation, therefore, do not come under the scope of section 21(g) of the Income Tax Ordinance 2001?"

2.Learned counsel for the applicant, after having read out the impugned order and orders of the two authorities below, submits that the Appellate Tribunal Inland Revenue was not justified to delete disallowance under section 21(g) of the Income Tax Ordinance, 2001, while holding that late delivery charges cannot be termed as paid in violation of law, rule or regulation, therefore, do not come under the scope of section 21(g) of the Income Tax Ordinance, 2001 as, according to the learned counsel, such charges were paid towards late delivery charges. It has been prayed that question proposed hereinabove may be answered in favour of the applicant and against the respondent.

3.We have heard the leaned counsel for the applicant and perused the record as well as the impugned order passed by the Appellate Tribunal Inland Revenue in the instant case, which reflect that while reaching to the conclusion that late delivery charges cannot be termed as paid in violation of law, rule or regulation, therefore, do not come under the scope of section 21(g) of the Income Tax Ordinance, 2001, reliance has been placed on reported decision of this Court as well as the decision of the Hon'ble Supreme Court on the subject controversy.

Attention of learned counsel for the applicant was drawn towards the reported decisions as well as to the provisions of section 21(g) of the Income Tax Ordinance, 2001, who was directed to assist this Court as to how, the late delivery charges, being non-compliance of a contractual obligation by the applicant, could possibly be equated with violation of any law, rule or regulation, as provided under Income Tax Ordinance, 2001, however, the learned counsel for the applicant could not respond to such query of the Court, and has candidly stated that the question proposed is fully covered by the afore-cited decision of this Court as well as by the decision of the Hon'ble Supreme Court.

4.It would be advantageous to reproduce hereunder the finding of the Appellate Tribunal Inland Revenue, as contained in para 3 of the impugned order, which reads as under:--

"3. Being aggrieved with the action of the ACIR, the taxpayer/ respondent filed appeal before the Commissioner (Appeals), who vide his orders Nos.18 and 19 of 2013, dated 30.08.2013 adjudicated as under upon which, the department is aggrieved now.

"7. The only issue involved in both the appeals is whether late delivery charges in violation of contractual obligation fall within the ambit of section 21(g) of the Income Tax Ordinance, 2001 or not. The departments' reliance is only the decision of the Tribunal in unreported case in I.T.As. Nos.291 and 292/KB/ 2010 dated 01.07.2010, whereas the appellant has relied on a number of decisions of the Tribunal and higher appellate authorities and some of which are later in time including the judgment reported as 2010 PTD 1783 dated 16.10.2012. The issue of invoking of section 24(c) of the repealed Ordinance, [21(g) of the Income Tax Ordinance, 2001] came under consideration of the Supreme Court of Pakistan in the decision reported as 2000 PTD 3741 and by the Sindh High Court in their judgment reported as 2006 PTD 2256 besides the other judgments.

7.1 In the light of the aforementioned judgments one of which is later in time later delivery charges cannot be termed as paid in violation of law, rule or regulation therefore do not come under the ambit of section 21(g) hence the disallowance in both the years under section 21(g) is deleted."

5.From perusal of hereinabove finding as recorded by the two appellate forums below, it is clear that the treatment meted out by the taxation officer while invoking the provisions of section 21(g) of the Income Tax Ordinance, 2001 in the instant case, is erroneous in law and fact, whereas, subject controversy has already been decided by this Court as well as by the Hon'ble Supreme Court in the aforesaid reported decisions. The finding of the Hon'ble Supreme Court as contained in para 7 of the judgment, and the finding of the Hon'ble High Court as contained in paras 7, 8 and 9 of the judgment are reproduced hereunder for the sake of brevity and reference of the subject controversy:

2000 PTD 3741

It may be pertinent to observe that penalty is to be levied or a fine is to be imposed on account of any criminal infraction / violation of any legal provision. In the instant case interest / compensation for delayed payment has been provided in the statute as well as in the agreement, therefore, it may be non-compliance with contractual obligation on the part of the petitioner to make additional payment as interest or compensation for late payment, but it could not be said to be violation or infraction of criminal law, therefore, such payment cannot be termed as a penalty or penal interest, having regard to the fact that payments were made for the purpose of carrying on business to enable the petitioner to carry on and earn profit in business and if the payment had not been made, the petitioner could have suffered losses.

2006 PTD 2256:

"On careful examination of the ratio of judgment of Hon'ble Supreme Court in the case of Premier Bank Ltd. (supra) and Sui Southern Gas Company Ltd. (supra), as well as other judgments from the Indian jurisdiction the following conclusions are drawn:

(1) to (6) Not relevant

(2)

"(7) If any excess amount is paid by an assessee for any delay or default in performance of an act and the excess charge is fixed and not in the discretion of any competent authority in law and no separate proceeding is required for charging the excess / enhanced amount and no separate order is required to be made and there is no requirement of framing any charge or confronting the defaulting party and seeking explanation then the amount so charged would not be deemed to be penalty/fine.

(8) Mere use of word penalty or fine shall not make an amount to be in the nature of penalty or fine until and unless in the substance the amount charged is penalty or fine or in the nature of penalty or fine.

(9) The payment of only such amount shall be treated as penalty/ fine which is charged as a result of infraction, transgression or violation which is imposed by an authority competent in law. An amount paid by an assessee on its own volition/discretion/ option available in law for the consideration of business purpose in pursuance of commercial expediency and not with the intention to be penalty/fine and shall be deemed to be extension of liability permissible in law and / or compensation for delay/default contemplated by the parties and permissible in law."

6.We have not been able to understand as to how, in view of the express provisions of section 21(g) of the Income Tax Ordinance, 2001, and the decision of this Court as well as of the Hon'ble Supreme Court on the subject controversy, the department has still filed instant reference applications, proposing the aforesaid question, which has already been decided by the superior Courts, whereas, such fact has also been conceded by the learned counsel for the applicant. We may observe that scope of filing a reference application in terms of section 133 of the Income Tax Ordinance, 2001 cannot be equated with filing an appeal as a revision whereas its scope is restricted only to the extent of referring only question(s) of law arising from the order the order as may be passed by the Appellate Tribunal, for the opinion of this Court. We are of the view that tendency of filing frivolous references by the department needs to be addressed, so that this Court as well as the parties, may not be unnecessarily burdened with such cases wherein the question of law already stands decided by the superior Courts.

7.Accordingly, instant reference applications, being misconceived in law, are dismissed in limine with cost of Rs.10,000/- in each case, to be deposited in the High Court Clinic.

KMZ/C-11/Sindh Order accordingly.